Yes, the cost of using a co-working space can be written off in the United States. Note that you can “entirely” deduct your co-working space membership when the time comes to do your taxes, ensuring that the rent-based approach of co-working spaces remains favorable in very unique ways.
Depending on your documented status as a freelancer, remote worker/contractor, or independent consultant, you are legally allowed to deduct your co-working membership on your taxes. Although a lot of the expenses acquired at a co-working space can be written off, however, the IRS is explicit that the cost of commuting and parking cannot be written off.
Co-working spaces see to the needs of self-employed freelancers, team leaders who bring in staff, and workers who work remotely for other companies, but different tax rules apply to these groups.
Have it in mind that remote employees in a co-working space find it harder than freelancers to claim business expenses because they are expected to itemize deductions and prove these expenses exceed 2 percent of their adjusted gross income.
In the United States, a full-time freelancer tends to have loads of contracts to look through come tax season and, most often, their income isn’t stipulated and can easily fluctuate. Unless they keep detailed notes on their daily expenses along with receipts from every transaction, it can be very tasking to analyze their gross income alone, not to mention what totals as 2 percent of that.
How to Write Off Co-working Space Expenses
Renting office space just like it was noted above offers significant tax deductions during tax season. When working out of a co-working space, here are simple steps to write off your expenses during tax seasons;
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Calculate Your Co-Working Expenses
Truth be told, your co-working membership dues can be written off. Aside from this, other expenses associated with your office space can also be written off on your taxes. Note that some of the basic items you can write off include conference room rental fees, printing fees, networking events, business mailbox or physical address, and live answering services.
Save Your Receipts
Although not necessary when renting a co-working space, however as best as you can, you should save your receipts. This is the best way to prove an expense. It is also advisable to jot down helpful notes on the receipt, including the name, duration, location, cost, and purpose of the expenditure.
Consider getting a big folder to arrange your receipts. This will ensure you have everything in one place when it is time to do your taxes. If you want to be more organized, then you can create a running spreadsheet and input all necessary business expenses weekly or daily.
Claim deductions on Schedule C
In the United States, Schedule C is a very vital tax form for sole proprietors and other self-employed business owners. This form is used to report profit or loss and to include this information in the owner’s personal tax returns for the year.
Freelancers and solopreneurs usually fill out a Schedule C form during tax season. This form lists out all the tax-deductible business expenses for the year.
Calculating your co-working space tax write-off is easier. You can deduct what you pay for your membership under the “Rent” category on Schedule C, and just like it was noted above, you will still need the receipts to back up your deduction.
Consult IRS Publications If You Have Questions
Truth be told, deductions and writing off business-related expenses fall into gray areas. For instance, you can claim an automobile business expense for commuting for business purposes but not all. You are not allowed to deduct for your morning commute from your home to your co-working space.
Nonetheless, if you don’t consistently rent space at a co-working office, then the cost of commuting from your regular or home office can be written off as well. IRS Publication 463 explains in detail travel, entertainment, gift, and car expenses.
Therefore, it is recommended that you consult this publication if you have questions about whether a particular co-working space expense qualifies as a business deduction.
Seek Professional Help
Have it in mind that it is not lawful to complete your taxes yourself or on your own. In the United States, you are allowed to use a qualified tax professional who can look at your business expenses and tally up your business deductions for you.
To easily locate a certified public accountant, consider contacting your state’s Society of Certified Professional Accountants or even find your state’s Society online. Simply key in the “Find a CPA” link on the website; The Society will surely have a list of CPAs you can browse or there may be a number to call for a referral. You can also seek referrals from other business owners.